Credit card products have become so ubiquitous that they have fundamentally changed the manner in which financial transactions and dealings are viewed and conducted in society today. Credit card products are most commonly represented by plastic card-like members that are provided to customers through financial account providers, such as banks and other financial institutions.
With a credit card, an authorized customer or cardholder is capable of purchasing services or merchandise without an immediate, direct exchange of cash. With each purchase, the cardholder incurs debt to their credit card account, which the cardholder may thereafter pay upon receipt of a periodic statement. In most cases, the cardholder will have the option to either fully pay the outstanding balance or, as a matter of necessity or choice, defer a portion of the balance for later payment with accompanying interest or finance charges for the period during which an outstanding account balance is maintained.
Failure to promptly pay the required portion of an outstanding credit card account balance has a negative impact on a the cardholder's credit rating. Generally, a person's credit rating indicates the perceived risk in issuing that person credit. Creditors rely on credit ratings in determining not only whether to issue the person credit, but also the interest rate charged for that credit. Typically, credit reporting agencies calculate a credit rating by collecting information reflecting a person's creditworthiness including, in order of importance, punctuality of past payments, current debt, length of credit history, types of loans and credit, amounts of loans and credit in the recent past. Based on this information, a credit agency calculates a “credit score” which is a numerical index representing a person's financial creditworthiness. In other words, a credit score measures the risk that a person will fail to pay back a loan to a creditor. Given the weight of punctuality in determining a cardholder's credit score, it is important to ensure that the required amount due on the outstanding account balance is paid before any delinquency is reported to a credit agency.
Financial account providers offer a variety of services to assist their customers in making timely payment of debts. The most familiar of these are overdraft protection systems, wherein banks provide instant loans to cover any overdraw on a customer's draft account to prevent the customer's draft from being refused for insufficient funds. By taking advantage of overdraft services, bank customers protect their financial reputation from being injured due to a rejected draft. For the bank, overdraft protection systems enhance revenue due to the fees and interest charged for the service.
Some banks offer overdraft-type services for credit cards in which funds are automatically withdrawn from the cardholder's account to pay the minimum monthly payment due on their credit card. If the cardholder's account has insufficient funds to cover the credit card's minimum required payment, the bank loans the cardholder funds to cover the overdraw. By this method, cardholders benefit by avoiding the high interest rates charged on the credit account balance and, furthermore, prevent their account from becoming delinquent. Banks also benefit from the enhanced revenue generated by the fees and interest that might otherwise be earned by the credit card issuer.
Other examples of systems designed to assist in timely payment of debts include online banking systems which enable customers to schedule automatic payments of bills from a bank account. Similarly, financial services providers offer automatic credit card payment systems in which a credit card is automatically paid from an enrolled cardholder's bank account. Cardholders may, for example, arrange to automatically pay various amounts of their credit card balance including the minimum balance due, a fixed amount, or the entire balance of the credit card account. These services benefit cardholders by assisting them in maintaining a good credit rating by ensuring that credit card accounts are paid in a timely fashion.
Although cardholders appreciate the benefits offered by systems that ensure their credit cards do not become delinquent, they often dislike having their bank accounts automatically debited periodically and prefer to pay their bills directly. Thus, there is a need to offer a service that protects cardholder's credit rating while providing greater flexibility. Further, there is a need for a service that protects a cardholder's credit rating by ensuring, for example, that a required payment is transferred to the cardholder's account when the account is in danger of being reported as delinquent to a credit agency, without automatically transferring funds each period.